Social Security Funding and Trump's Proposed Budget Cuts: How Do They Impact Disability Applicants and Recipients?

In my last blog, I mentioned that the rate of Americans receiving disability has leveled off in the past few years after a period of steady growth since the late 90’s. But even though growth has slowed and politicians and lawmakers are working to address the situation, the Social Security system as a whole will still face a funding gap in the future. Here is what you should know.

Social Security is funded primarily by payroll taxes.

The money in the Social Security system comes from payroll taxes and self-employment taxes. Contributions from interest, benefit taxes, and general fund reimbursements also play a role, but the majority of Social Security income is taken out of workers' paychecks. In 2014, payroll taxes accounted for 85.5% of its income. Social Security describes the system as "pay-as-you-go", meaning that most of the payroll taxes it collects from today's workers are used to pay benefits to today's disability recipients. This system works reasonably well, but it means that Social Security must use its other sources of income to make up the difference between tax revenue (money in) and benefits paid (money out).

Social Security faces a long-term funding gap because of shifting demographics.

As more and more Americans born in the Baby Boom become disabled or retire, the balance will shift so that the amount Social Security pays in benefits will exceed its total income. At this time, it will have to dip into the principal of its trust fund in order to make up the difference. With less money in the trust fund, it will earn less interest, lowering those resources until they are exhausted. Think of this like using your rainy day nest egg or 401k to pay for living expenses which cuts back on the interest you earn on those investments.

An exhausted trust fund will mean that Social Security can no longer pay the scheduled benefits that were projected. Many people have the mistaken impression that Social Security benefits will completely stop in 2034, but this is not true! The monthly benefit will simply decrease--dramatically. The current projections are that beneficiaries will receive around 79% of scheduled benefits, which is much better than no benefit at all, but it will put a strain on millions of Americans who depend on Social Security.

Many Social Security beneficiaries already live close to or below the poverty line.

As this chart shows, the average disability benefit in 2016 was $1,166 per month, or $13,992 per year. (If that dropped to 80%, the monthly benefit would be around $930.00 a month.)

The federal poverty level for one person in 2018 is $12,140. This means that millions of Social Security disability recipients already meet the federal definition of poverty, and millions more are right on the edge.

The operations budgets are strained, too: Social Security Administration fights to get enough money to process claims.

The Trump Administration has proposed a cost-cutting budget for 2019 that targets Social Security's administrative costs.

If you are thinking about filing a Social Security disability claim, you should probably start your claim or talk to a qualified representative right away.

Once it is pretty clear that you are not going to be able to work for 12 months or more, go ahead and file your claim. The wait times for decisions on claims are already long as it is – chances are that wait times will continue to increase in light of the latest budget.

If you receive disability and need help from your local field office you might be able to get what you need online.

The Social Security Administration has introduced several new features that make it possible to take care of business online or by phone. The recent blog post at blog.ssa.gov explains the constantly expanding online services.